A 529 plan is a popular way to save for a college education. Each account offers unique financial and tax benefits, which begs the question: can you have multiple 529 plans for the same child? The answer is yes, a single person can be the beneficiary of as many 529 plans as you want. However, it doesn’t make sense very often to open multiple 529 plans for the same child. We cover when it might work below.
Benefits of Multiple 529 Plans for the Same Beneficiary
Here are a few reasons someone may benefit from having multiple 529 plans for the same beneficiary.
- Investment diversification: Most 529 savings plans offer investment options that are well-diversified among different asset classes (stocks, bonds, money market, etc.). But perhaps your favorite 529 plan lacks some component that you would like to see in your portfolio, such as international equity, small-cap value, or a principal-protected option. You may find that missing element in another state’s 529 plan and decide to put part of your 529 savings into that second plan.
- Flexibility: You’ll gain some income tax flexibility. By establishing multiple accounts, you’ll have the flexibility to pay college bills from the account with the most growth first, assuring maximum tax savings. If you ever have to take a taxable withdrawal, you’ll want to take it from the account with the least growth. Note: Your accounts must be in different states. All accounts you have in the same state for the same beneficiary are aggregated for tax purposes.
- Fund manager variety: Different 529 plans use different investment managers. If you are satisfied with the fund family in a single-manager plan, that’s fine. But if you want to diversify across different fund companies or managers, you will need to open multiple 529 accounts. Another option is to find a 529 plan that employs a ‘multi-manager’ investment platform.
- Better risk management for 529 plans dedicated to different educational time periods: You are saving for private elementary or secondary school expenses in addition to college costs. Since the time horizon is different, the risk profile for each set of investments should be different.
- Tax benefits: Your state may offer a state income tax deduction or tax credit capped at a certain amount. Your “favorite” 529 plan could be from a different state, yet you may still want to take advantage of the maximum tax deduction available. Allocating your contributions between both plans and states may maximize your deduction potential.
- Your state’s income tax break for contributions may be per beneficiary or account, instead of per taxpayer. If you have a 529 plan for each child, you may be able to claim a larger state income tax deduction or tax credit.
- There may be a trade-off between a state income tax break on contributions to your state’s 529 plan and lower fees on an out-of-state 529 plan. When the child is young, low fees matter more. When the child enters high school, the state income tax deduction or tax credit will have a greater financial impact.
- You’ve moved states, but can’t roll over your old 529 plan to the new state’s plan because your original state treats outbound rollovers to another state’s 529 plan as a non-qualified distribution. To avoid this disadvantage with rollovers, you may consider opening a new account entirely.
- Combining prepaid with savings: To lock in future tuition and fees, you may enroll in your state’s 529 prepaid tuition plan or the private-college Independent 529 Plan. Many state prepaid plans do not cover certain expenses like books, supplies, equipment, and room and board. You would have to open another account in a 529 savings plan for these additional expenses.
- Investment protection: You want an FDIC-insured investment option, a stable-value portfolio, or another specific type of conservative investment, but your state doesn’t offer them.
Cons of Multiple 529 Plans
There aren’t a lot of negative effects of having multiple 529 plans, it just might be the best use of resources. Here is a breakdown of the cons of opening multiple 529 plans for the same beneficiary.
- Limited use of funds: If you’re pouring more money into your 529 plan you may be contributing more than is needed, locking up your money to be used only for educational expenses.
- Additional fees: You could be paying fees for multiple plans instead of just one.
- More ongoing management: It will require more time and effort for you to manage both plans instead of just one.
When Should You Consider Multiple 529 Accounts?
Can a child have more than one 529? Yes, but that doesn’t mean multiple 529 plans are the right decision. We recommend that you only open multiple 529 accounts when you have a clear goal in mind (such as any of the above benefits). Your child can benefit from a single 529 plan just as they would multiple plans unless you have a separate plan for how you’re going to invest your funds.
How to Open More Than One 529 Plan
No matter what number of 529 plans you open, each one has the same process. Here’s the information you’ll need in order to open a 529 plan at any point in time:
- Personal information: You’ll need a social security number and contact information for the account opener and beneficiary (child). If you or the beneficiary dies, you’ll want to prepare successor account information. 2.
- Account information: Use a detailed eye to fill in the account and routing numbers for your 529 plan.
- Contributions: If you’re opening state-diverse accounts, remember that contribution limits vary by state. You can set up automatic deposits abiding by those limits for each account. Additionally, you may have to make a minimum first contribution.
- Investment diversification: You’ll need to decide how you want the funds invested.
Once you’ve opened a 529 plan it’s important to make sure you understand how to properly manage that plan. You should set aside time every quarter to review the performance of each 529 plan. This is when you can be on the lookout for any penalties and contributions that surpass state limits.
Can You Combine Two 529 Plans?
If you already have two 529 plans you can roll one over to the other, combing the two into a single fund. This works similarly to a rollover IRA and you can simply request a rollover from your plan holder. The new plan holder will take care of the backend details of making the rollover take place. Keep in mind, however, that the IRS only allows one rollover per beneficiary every 12 months.
The Bottom Line
Overall, opening multiple 529 plans for the same child or beneficiary can be done but it doesn’t make sense most of the time. If you’re looking to diversify the investment options or if you have a family member that doesn’t want to mix their contributions with yours then it might make sense. The process to open a second 529 plan is the same as the first.
Frequently Asked Questions (FAQs)
Do I need separate 529 plans for each child?
It depends on how far apart your children will go to school. When your first child finishes school then you can change the beneficiary on that 529 plan to your next child. If they go to school at the same time then only one can benefit. It could also be beneficial to have one for each child so that you’re saving money every month for each of them so that the money doesn’t run out before the last child goes to school.
How many 529 plans can a child have?
As many as they want. There is no limit to how many 529 plans someone can be a beneficiary of, however, you can only roll one over into their name every 12 months.
Does it make sense to have multiple 529 plans?
For some people, it does make sense to have multiple 529 plans. If you have a clear investment strategy or don’t want to mingle funds from different sources then having multiple plans might make sense. Most of the time, however, it makes more sense to have a single 529 plan per child.